Agglomeration economies and industry location decisions: the impacts of spatial and industrial spillovers

Spatial spillovers and inter-dependencies among industries are often ignored in conventional production studies, despite substantial evidence suggesting their importance. Thick market or agglomeration effects may be associated with own-industry, supply-side, and demand-side spillovers. Our theoretical framework, which measures and evaluates such spillovers, allows us to estimate their cost-effects and to evaluate their contribution to location decisions. Our empirical analysis focuses on spillovers in the US food manufacturing industry across states and from agricultural input supply and consumer demand. We find average and marginal cost-effects in the spatial and industry dimensions that are consistent with food system regional concentration patterns.